Rita Foley

Operating executives are responsible for delineating results and do so while focusing tactically on creating sales, controlling costs and maximizing customer service to drive financial performance within the context of the corporation’s strategy. They design the strategic plan for the corporation; implement controls to monitor risks and set limits for appropriate risk taking; and select the key managers, develop capabilities of the key managers and design the organization.

Corporate directors, on the other hand, provide oversight of the company’s progress. They ensure that the corporation’s strategy recommended by management is appropriate, that it is adequately funded and then approve it. They must fully understand the risks of the organization, both apparent and hidden, and ensure that succession plans for key executives are in place and that they are appropriate.

Directors provide oversight in two primary ways: through decision-making and leadership. While state corporate statutes do not define the specifics of the term “oversight,” the following tasks are generally included:

• Selecting the CEO, setting the goals for the CEO and other senior executives, evaluating and establishing their compensation and making changes as appropriate;
• Developing, approving and implementing succession plans for the CEO and top senior executives;
• Reviewing and overseeing the corporation’s risk management profile and programs;
• Understanding the corporation’s financial statements and monitoring the adequacy of financial and other internal controls as well as its disclosure controls and procedures; and
• Monitoring and approving major changes to the corporation’s performance: its operating, financial and other significant corporate plans, strategies and objectives.

The board is also the guardian of the corporation’s integrity. The board encourages senior management to establish the proper “tone at the top” by setting clear expectations for the corporation’s ethical behavior and conduct for its business in compliance with the law.

Precisely because board members are free from having to worry about execution, they should probe and think strategically. Directors’ focus should be long term. Board members can throw out what may seem to some people as a wild idea and to others a philosophical question. Those ideas and questions in the boardroom might just be what are needed to allow the company to make bold moves.

A board colleague recently related how on one of his other boards, the directors decided to hire a CEO with no experience in that given industry. They determined that hiring someone with a services background was exactly what they needed to transform this traditional equipment manufacturer. Management teams that are so focused on near-term results and meeting existing customers’ needs sometimes are the last to see disruptive technologies or innovation.

The work experience that a director brings to the board, linked with the core values of a director’s role—informed judgment, general oversight and dedication to the corporation’s best interests— serve the interest of the company and its shareholders tremendously. A director who exercises independent judgment and strategic probing for the overall benefit of the corporation serves a critical link to the betterment of businesses.

Rita Foley serves on the boards of PetSmart and Dresser-Rand and is co-author of the forthcoming book, Reboot Your Life.